Section 425 of the Income-tax Act, 2025 charges interest on the shortfall in each advance tax instalment — 3% for the June, September and December instalments and 1% for March. No interest arises if 12% is paid by 15 June or 36% by 15 September.
What section 425 does
Section 425 is the successor to section 234C — interest for deferment, meaning for missing an instalment date even if the full amount is eventually paid.
The interest is charged on the shortfall at each instalment date, computed against the tax due on returned income. The rate is 3% for the June, September and December instalments — which represents three months of deferment — and 1% for the March instalment, representing one month.
Two tolerances soften the first two instalments. No interest arises if the advance tax paid by 15 June is 12% or more, or by 15 September is 36% or more, of the tax due on returned income. These are lower than the 15% and 45% the table requires, giving a deliberate margin for estimation error.
The Income-tax Act, 2025 takes effect from 1 April 2026 and applies from tax year 2026-27. The Income-tax Act, 1961 continues to govern every year up to 31 March 2026, including assessments, appeals and penalties for those years, because of the repeal and savings provision in section 536. Figures quoted here are the amounts written into the Act as enacted (with the Gazette corrigenda of 3 September 2025); the annual Finance Act can change rates and thresholds.
Old Act and new Act, side by side
The table below shows what the Income-tax Act, 1961 did and where the same ground is covered in the Income-tax Act, 2025.
| Income-tax Act, 1961 | What it did | Income-tax Act, 2025 |
|---|---|---|
| 234C(1)(a) | Instalment-wise shortfall interest for companies and others | 425(1) |
| 234C(1), proviso | 12% and 36% tolerance for the first two instalments | 425(2) |
| 234C(1)(b) | Presumptive taxpayers — single instalment | 425(3) |
| 234C(1), fourth proviso | Relief for capital gains and first-time business income | 425(4) |
| 211 | Instalment dates and percentages | 408 |
| 234B | Interest for the annual shortfall | 424 |
Section 425 sub-section by sub-section
Read this alongside the bare text — each heading below is a sub-section of the section as enacted.
Sub-section (1) — shortfall interest, instalment by instalment
Where an assessee liable to advance tax under section 404 fails to pay, or pays less by the date in column B than the advance tax due on returned income in column C, interest is payable on the shortfall in column D at the rate in column E. The table sets: 15 June — 15% of tax due — 3%; 15 September — 45% — 3%; 15 December — 75% — 3%; 15 March — 100% — 1%.
Sub-section (2) — the 12% and 36% tolerances
No interest is payable under sub-section (1) if the advance tax paid on current income is 12% or more of the tax due on returned income by 15 June, or 36% or more by 15 September. Note that these tolerances apply only to the first two instalments — there is no equivalent margin for the December or March dates.
Sub-section (3) — presumptive taxpayers
An assessee declaring profits under section 58(2) (Table serial 1 or 3), or liable under section 404, who fails to pay or pays less than the tax due on returned income by 15 March, pays simple interest at 1% on the shortfall. Consistent with section 408(2), they face a single date rather than four.
Sub-section (4) — when no interest is charged at all
No interest arises under sub-section (1) or (3) for a shortfall caused by underestimating or failing to estimate: (i) capital gains; (ii) income as per section 2(49)(n); (iii) income under the head profits and gains of business or profession accruing for the first time; and (iv) dividend income. The relief is conditional — read the rest of sub-section (4) for the requirement to pay the tax on that income in the remaining instalments.
How it works with section 424
Section 425 looks at dates; section 424 looks at the annual total against 90% of assessed tax. A taxpayer who pays everything on 15 March escapes section 424 but not section 425. One who pays every instalment on time but underestimates the year badly may face section 424 but not section 425.
The section 425 interest table, as enacted
| Sl. No. | Due date of instalment | Advance tax due on returned income | Amount of shortfall | Interest payable |
|---|---|---|---|---|
| Instalment | due on returned ssincome | Shortfall of advance tax being advance tax due as per column C, as reduced by advance tax already paid on or before the date specified in column | payable on Shortfall as specified in column D | |
| 1. | 15th day of June. | 15% of the tax due on returned income. | Shortfall till 15th day of June. | 3% |
| 2. | 15th day of September. | 45% of the tax due on returned income. | Shortfall till 15th day of September. | 3% |
| 3. | 15th day of December. | 75% of the tax due on returned income. | Shortfall till 15th day of December. | 3% |
| 4. | 15th day of March. | 100% of the tax due on returned income. | Shortfall till 15th day of March. | 1% |
Worked example
Tax due on returned income for tax year 2026-27 is ₹10,00,000. The taxpayer pays as follows.
| Date | Required (cumulative) | Paid (cumulative) | Shortfall | Interest |
|---|---|---|---|---|
| 15 June 2026 | 15% = ₹1,50,000 | ₹1,30,000 — that is 13% | — | Nil — 13% exceeds the 12% tolerance in sub-section (2)(a) |
| 15 September 2026 | 45% = ₹4,50,000 | ₹3,40,000 — that is 34% | ₹1,10,000 | 3% × ₹1,10,000 = ₹3,300 — 34% is below the 36% tolerance |
| 15 December 2026 | 75% = ₹7,50,000 | ₹7,50,000 | Nil | Nil |
| 15 March 2027 | 100% = ₹10,00,000 | ₹9,60,000 | ₹40,000 | 1% × ₹40,000 = ₹400 |
Total interest under section 425 is ₹3,700. The June instalment escaped entirely on a two-percentage-point margin, while September missed the tolerance by the same narrow margin and attracted interest — which is why the 12% and 36% figures, rather than 15% and 45%, are the numbers to plan against.
If ₹6,00,000 of the income had been a capital gain arising in February 2027, sub-section (4)(a)(i) would remove the interest attributable to it, provided the conditions in that sub-section are met.
Compliance checklist and due dates
- Plan the first two instalments against 12% and 36%, not 15% and 45%.
- Note there is no tolerance for the December and March instalments.
- Segregate capital gains, first-time business income and dividend income — sub-section (4) can remove interest on shortfalls caused by these.
- Presumptive taxpayers should compute against the single 15 March date at 1% under sub-section (3).
- Compute the shortfall against tax due on returned income, not on assessed income — that is the section 424 base.
- Expect section 424 to apply separately if the annual total falls below 90% of assessed tax.
Common mistakes
- Planning to the 15% and 45% table figures and losing the benefit of the 12% and 36% tolerances by a whisker.
- Assuming a tolerance exists for the December or March instalments.
- Claiming sub-section (4) relief for capital gains without meeting the condition to pay the tax in the remaining instalments.
- Computing section 425 interest on assessed income; the base is tax due on returned income.
- Treating section 425 as an alternative to section 424 rather than an additional charge.
This is an explanatory guide, not tax advice, and it does not reproduce the section in full. Read the bare text of the section before you rely on it, and check for later amendments, the Income-tax Rules made under the new Act, and CBDT circulars and notifications.
Related Guides
- Section 408 — advance tax instalments and due dates
- Section 424 — interest for advance tax default
- Chapter XIX — collection and recovery of tax
- Income-tax Act 1961 vs 2025 — master comparison
- Section mapping cheat sheet: 1961 to 2025
Key Facts About Section 425 of Income
- Applies in: All states across India, under the relevant central law.
- Mode: Mostly online via the official government portal.
- Typical timeline: Ranges from a few days to a few weeks depending on the case.
- Non-compliance: May attract penalties, interest or late fees.
- Expert help: TaxClue completes the entire process end to end for you.
Which section replaces section 234C?
Section 425 of the Income-tax Act, 2025 — interest for deferment of advance tax.
What is the rate of interest for a missed instalment?
3% on the shortfall for the June, September and December instalments and 1% for the March instalment, under the section 425(1) table.
Over 90% of compliance penalties in India arise from missed due dates — timely handling can save businesses thousands of rupees each year.
Section 425 of Income: a key compliance topic in Indian tax and corporate law that businesses and individuals must understand to remain compliant.